Let’s be clear: The housing industry is one of the most regulated and manipulated sectors of the economy. The seeds of the financial meltdown were planted by social engineering by liberals in the Clinton administration, mandating loans by quota based upon income instead of prudent lending standards.
It became so bad that when the current anti-gun zealot Governor Cuomo of New York as head of HUD under Clinton ordered welfare and unemployment be counted as ‘income’ to qualify for a mortgage. The goal of home ownership by all Americans meant radical changes to prudent lending practices had to be made.
To accomplish this manipulation of the housing market the government masters ordered Fannie Mae and Freddie Mac to buy these questionable loans. Printing money by the Federal Reserve to buy these mortgages wasn’t the practice of the day. Instead packaging bundles of these mortgages to sell to Wall Street firms, national, and international banks to keep the money mill churning was the practice of the day.
We all know how that ended. But let us give the Federal Reserve under Greenspan an assist for lowering interest rates which added fuel to the fire of rising home prices. Real estate has and always will be a supply and demand commodity. The social engineers increasing demand through lowered lending standards combined with cheap money kept the scheme alive.
As long as prices were rising the scheme worked. This led to more problems when millions of families treated their homes as piggy banks by tapping what they perceived was real money. Refinancing at low rates and pulling cash out to get that boat, or take that lavish vacation became the norm. The result? Ask any of the 25% of homeowners who remain under water on their mortgage.
What do we have today? A Federal Reserve Chairman Bernanke who attempts to implement fiscal policy when his job is monetary policy. Guess Bernanke is trying to save the nation from the economic disaster of the Obama’s administration’s leviathan laws, taxation, over-regulation, and disastrous deficit spending.
Regardless Bernanke is making the same mistake as Greenspan, lowering rates for too long in an attempt to manufacture demand. It worked in 2012. American’s aren’t stupid, they refinanced in record numbers, however this time not to pull out cash, to lower payments or reduce the term of their mortgage. Those desiring to change homes sensed the historic opportunity.